Rising costs and Brexit uncertainty curb land value growth

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Increasing build costs, patchy house price growth and increased economic uncertainty are weighing on land values in urban brownfield, greenfield and Prime central London locations, according to the latest Knight Frank Residential Development Land Index.

As reported by 24housing, land value is set to be a key issue for housing over 2019 with the government accused by a key Commons committee of lacking the “vision and urgency” to engage with value capture despite recognising the scope to do so.

The Index shows average greenfield development land prices declined 0.6% in Q4 this year, taking the annual growth to 0.6%.

Urban brownfield development land prices returned to growth, climbing 1.0% during the quarter with the annual change -0.5%.

But prime central London development land values declined 2.8%, taking the annual decline to 5.6%.

David Fenton, UK Head of Regional Land at Knight Frank, said: “There is considerable uncertainty surrounding the political environment, any business, be it manufacturing, housebuilding or professional services needs clarity in order to inform their decision making process.

“Across the UK, businesses cannot plan for the short to medium term, therefore we have seen the housebuilders pricing in higher margins to address the unknown risks going forward.”

Anecdotally, the report reveals site visitor numbers remain robust, though customers are taking longer to commit to purchases, particularly in the south of England.

In the resale market during the first nine months of this year, when compared with 2016, the average time taken from listing a home to sale agreed in the East of England, the South East and London climbed more than 30%, according to Rightmove data.

By contrast, the time taken from listing to sale agreed over the same period declined by 5.6% in the East Midlands, 11.4% in the West Midlands and 9.9% in the North West.

These risks, alongside that economic uncertainty over Brexit, have prompted developers to increase their margins, which the report says is suppressing growth in greenfield land values.

Urban brownfield land values declined by 0.5% during 2018, also for the reasons outlined above.

That’s the first annual decline since Knight Frank began tracking Urban Brownfield land values in Q4 2015.

Values edged up 1.0% during the quarter, however, following a 2.3% decline in Q3, led by gains in Birmingham City Centre sites.

The report acknowledges Birmingham as still undersupplied when it comes to housing – citing official data.

But heightened activity in the land market during the past three years has seen the emergence of a “high quality” pipeline.

The report expects developers to be “increasingly selective” when purchasing land over quarters to come.

In prime central London, land values are shown as declining 2.8% in Q4, taking the annual decline to 5.6%.

Values have dropped almost 20% since the peak of the market in Q3 2015, and with the weak sterling, some ‘notable buyers’ have decided prime central London land now represents good value, the report says.

Sites of all types are transacting, though volumes remain low, and the report recognises the central London land market as “susceptible to negative sentiment” over Brexit with in many cases waiting for more clarity before choosing to sell.

Last month, the Commons HCLG committee said government lacked the “vision and urgency” to engage with land value capture despite recognising the scope to do so.

Government stats show that agricultural land alone, on average, increases in value from £21,000 per hectare to £1.95m per hectare granted planning permission for residential use.

The Committee’s report made the case for councils and central government to capture a ‘significant proportion’ of this uplift in value to invest in new infrastructure and public services.